Review of External Commercial Borrowings (ECB) policy

Posted on    04 July 2009

Review of External Commercial Borrowings (ECB) policy


The External Commercial Borrowing (ECB) policy is regularly reviewed by the Government in consultation with the Reserve Bank keeping in tune with the evolving macroeconomic conditions, sectoral requirements, global developments, etc. On a review of the macroeconomic conditions, certain liberalization / modifications in the ECB Policy have been proposed and these are given below:

As per extant policy, utilization of ECB proceeds for the real estate is not permitted. However, as a sector specific measure, the use of ECB proceeds for the development of integrated township, as defined in Press Note 3 (2002 Series) dated January 04, 2002 has been permitted in January 2009 and the policy was due for review in June, 2009. On a review of the prevailing conditions, it has been decided to continue the existing policy of permitting development of integrated township as a permissible end-use, under the approval route, until December 2009.

As per the current ECB norms, NBFCs, which are exclusively involved in financing of the infrastructure sector, are permitted to avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the Approval route, subject, inter alia, to the condition that the direct lending portfolio of the eligible lenders vis-à-vis their total ECB lending to NBFCs, at any point of time should not be less than 3:1. The policy was due for review in June, 2009. It has now been decided to dispense with this condition with effect from July 1, 2009. The proposals, however, will continue be examined by the Reserve Bank under the Approval route, as hitherto.

As per extant guidelines, ECB is permissible for the Infrastructure sector, which is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) ports, (vi) industrial parks and (vii) urban infrastructure (water supply, sanitation and sewage projects), viii) mining, refining and exploration. Further, units in the Special Economic Zone (SEZ) are also permitted to access ECBs for their own requirements. However, ECB is not permissible for the development of the SEZ. On a review, it has been decided to allow SEZ developers to avail of ECB, under the Approval route, for providing infrastructure facilities, as defined in the extant ECB policy, within the SEZ. However, ECB will not be permissible for development of integrated township and commercial real estate within the SEZ.

Currently, the ECB policy is not explicit about accessing of ECB by the corporates, which have violated the extant ECB policy and are under investigation by the Reserve Bank and / or Directorate of Enforcement. It is clarified that corporates, which have violated the extant ECB policy and are under investigation by Reserve Bank and / or by Directorate of Enforcement, will not be allowed to access the Automatic route for ECB. Any request by such corporates for ECB will be examined under the Approval route.

All other aspects of the ECB policy, such as USD 500 million limit per company per financial year under the Automatic Route, eligible borrower, recognised lender, end-use, average maturity period, all-in-cost, prepayment, refinancing of existing ECB, reporting arrangements, etc., remain unchanged.

The above amendments in the ECB policy will come into force on the date of Notification of Regulations / directions issued by the Reserve Bank in this regard under the Foreign Exchange Management Act, 1999.


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